Matthew’s view
How long the Iran war will carry on for is anyone’s guess.
What is becoming increasingly clear is that the economic fallout for the Gulf countries will be severe. The only real question is how bad will it be, and how long the recovery will take.
The closure of the Strait of Hormuz is upending oil and gas exports. Saudi Arabia, which has long invested in contingency plans, will still be able to get some of its crude to international markets, as will the UAE. Oman, which doesn’t rely on the narrow waterway, could benefit from higher oil prices. Even so, the Gulf will suffer a sharp drop in exports.
And it’s not just the oil sector that’s being hit.
As Gulf nations continue to deal with an unprecedented barrage of Iranian drones and missiles, the region’s tourism industry is being decimated. Many expatriates are leaving the region for the upcoming Eid holiday. How and when they will return is unclear. At best, economic diversification, which relied on the Gulf’s safety and stability, is on pause. At worst, confidence in the region’s role as a holiday destination, financial center, logistics hub, and home for global AI data centers has been shaken for some time.
Goldman Sachs forecast in a recent note to clients that, in the event of a prolonged conflict, some countries in the region could suffer economic contractions of as much as 14%. Even if the war wraps up soon, most analysts expect all the Gulf economies to shrink this year.
A rebound will come, but restoring confidence will be key to the region’s future, and it won’t be cheap.
Notable
- Gulf economies, particularly Saudi Arabia, will have to reconsider their reliance on capital inflows, including external borrowing, UK think tank Chatham House warned. Even if oil exports climb back within a few months, foreign lenders and investors will still be reappraising Saudi risk.